Drug Firm Held Liable for Tylenol Recall : Judge Says Johnson & Johnson, Not Insurer, Must Pay for Costs

A federal judge ruled today that a Johnson & Johnson subsidiary, not its insurance carriers, is liable for the $100-million Tylenol recall that followed the deaths of seven people from cyanide-laced capsules in 1982.

U.S. District Judge Maryanne Trump Barry said that the insurance policies for McNeil Laboratories Inc. did not cover the recall and that Johnson & Johnson, its parent, elected not to purchase more expensive recall insurance.

As a result, she said, J&J; cannot “pass the buck” to the carriers.

The seven people in the Chicago area died after taking Extra-Strength Tylenol capsules contaminated with cyanide.

J&J; undertook the recall from Sept. 30 to Oct. 7, 1982, to protect the public as well as Tylenol’s market share, and did so without consulting the insurers, the judge said.

The recall, coupled with the development of a tamper-resistant package and reassuring advertisements, permitted J&J; to regain its market share and eventually exceed it.

J&J; had contended that the language of its excess liability insurance policy clearly covered the recall and recall-related expenses.

It argued that the policies covered first-party claims, those made by the company seeking reimbursement for its losses. The nine insurance carriers, however, maintained that the coverage pertained only to third-party claims, those made by individuals who could sue McNeil.

The recall, the judge wrote in her 77-page opinion, “was not caused by liability for the seven deaths; it was at best merely related to the seven deaths in that they served as notice to the plaintiff that the Tylenol remaining on the shelves was potentially harmful.”

The judge also said the company’s intent in ordering the recall is crucial.

The move was initiated by the company’s desire to prevent further deaths and to restore Tylenol’s standing, she said.

The judge also said Johnson & Johnson once carried recall coverage but elected to drop it because of the prohibitive cost.